House prices will keep rising, despite claims that the recovery in values is unsustainable, the Royal Institution of Chartered Surveyors (RICS) has said.
Its data shows that more properties rose in value than fell during October, with the balance at its strongest since December 2006. This fits with other house price indices, such as those produced by Nationwide and Halifax, which show October was the fourth consecutive month property prices have risen.
However, while economists from both lenders agree that house price rises are not sustainable – largely because of rising unemployment and the weak mortgage market – RICS is more confident that the recovery will be long-lasting.
It found that the rise in people wanting to sell their homes rose during October across all regions of the UK for the first time since the onset of the credit crunch.
“Although the supply of property is beginning to pick up, it is still insufficient to keep pace with the increase in demand that points to further price gains in the near term,” explains Jeremy Leaf, spokesman for RICS.
RICS reports that buyer interest continues to rise, although the pace has slowed slightly over the past few months. This, it says, reflects the rise in consumer confidence as well as record-low interest rates, which make it relatively ‘cheap’ for people to borrow to finance property purchase, as long as they are able to stump up a deposit.
“Cheap money remains a critical prop for the market and this is being reflected in the continuing appetite for finance from first-time buyers despite the large deposits still being demanded by lenders," adds Leaf.
Meanwhile, government figures show that, for September, house prices increased by 1.2% but remained 4.1% lower than the same month last year. Halifax reports that house prices remain 4.7% down on an annual basis, but Nationwide’s figures show an annual rise of 0.4% in October.
Despite RICS’ optimism about the outlook for house prices, other housing pundits remain sceptical.
“While the timing remains highly uncertain, if the market were to move back to a better short-term demand and supply balance, then with mortgage credit still rationed and unemployment still rising, the recent upward pressure on prices could reverse pretty,” says Ed Stansfield, property economist at Capital Economics. His firm believes prices will fall by as much as 10% next year.
Catherine Penman, head of research at property consultancy Carter Jonas, says the housing market is “virtually unrecognisable” from a year ago, thanks to low interest rates and more attractive prices.
But she adds: "While the market overall is trending up, it remains delicately poised and certain regions may dip slightly from month-to-month, although volatility is to be expected at such an early stage of the market recovery.”